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The Company is a bank holding company within the meaning of the BHC Act and is registered as such with the
Federal Reserve Board. A bank holding company is required to file annual reports and other information with the
Federal Reserve regarding its business operations and those of its subsidiaries. In general, the BHC Act limits the
business of bank holding companies to banking, managing or controlling banks and other activities that the Federal
Reserve has determined to be so closely related to banking as to be a proper incident thereto, including securities
brokerage services, investment advisory services, fiduciary services, and management advisory and data processing
services, among others. A bank holding company that also qualifies as and elects to become a “financial holding
company” may engage in a broader range of activities that are financial in nature or complementary to a financial
activity (as determined by the Federal Reserve or Treasury regulations), such as securities underwriting and dealing,
insurance underwriting and agency, and making merchant banking investments. The Company has not elected to
become a financial holding company but may do so at some point in the future if deemed appropriate in view of
opportunities or circumstances at the time.
The BHC Act requires the prior approval of the FRB for the direct or indirect acquisition of more than five percent of
the voting shares of a commercial bank or its parent holding company. Acquisitions by the Bank are subject instead
to the Bank Merger Act, which requires the prior approval of an acquiring bank’s primary federal regulator for any
merger with or acquisition of another bank.
The Company and the Bank are deemed to be “affiliates” of each other and thus are subject to Sections 23A and 23B
of the Federal Reserve Act as well as related Federal Reserve Regulation W which impose both quantitative and
qualitative restrictions and limitations on transactions between affiliates. The Bank is also subject to laws and
regulations requiring that all loans and extensions of credit to our executive officers, directors, principal shareholders
and related parties must, among other things, be made on substantially the same terms and follow credit underwriting
procedures no less stringent than those prevailing at the time for comparable transactions with persons not related to
the Bank.
Under certain conditions, the Federal Reserve has the authority to restrict the payment of cash dividends by a bank
holding company as an unsafe and unsound banking practice, and may require a bank holding company to obtain the
prior approval of the Federal Reserve prior to purchasing or redeeming its own equity securities, unless certain
conditions are met. The Federal Reserve also has the authority to regulate the debt of bank holding companies.
A bank holding company is required to act as a source of financial and managerial strength for its subsidiary banks
and must commit resources as necessary to support such subsidiaries. In this connection, the Federal Reserve may
require a bank holding company to contribute additional capital to an undercapitalized subsidiary bank and may
disapprove of the payment of dividends to the shareholders if the Federal Reserve Board believes the payment of
such dividends would be an unsafe or unsound practice.
Regulation of the Bank Generally
As a state chartered bank, the Bank is subject to broad federal regulation and oversight extending to all its operations
by the FDIC and to state regulation by the California Department of Business Oversight (the “DBO”). The Bank is
also subject to certain regulations of the Federal Reserve Board.
Capital Adequacy Requirements
The Company and the Bank are subject to the regulations of the Federal Reserve Board and the FDIC, respectively,
governing capital adequacy. These agencies have adopted risk-based capital guidelines to provide a systematic
analytical framework which makes regulatory capital requirements sensitive to differences in risk profiles among
banking organizations, considers off-balance sheet exposures in evaluating capital adequacy, and minimizes
disincentives to holding liquid, low-risk assets. Capital levels, as measured by these standards, are also used to
categorize financial institutions for purposes of certain prompt corrective action regulatory provisions.
Prior to January 1, 2015, the guidelines included a minimum required ratio of qualifying Tier 1 plus Tier 2 capital to
total risk weighted assets of 8% (“Total Risk-Based Capital Ratio”), and a minimum required ratio of Tier 1 capital to
total risk weighted assets of 4% (“Tier 1 Risk-Based Capital Ratio”). The guidelines also provided for a minimum
ratio of Tier 1 capital to average assets, or “leverage ratio,” of 3% for institutions having the highest regulatory
